Campbell Brothers (CPB)

Deutsche Bank has upgraded its recommendation on laboratory services company
Campbell Brothers
to “buy" from “hold" owing to recent share price weakness.

The stock is trading on a forward price earnings ratio of 15 times financial year 2011 earnings per share, Deutsche calculates, which is in line with its long-term PE ratio.

The broker expects strong earnings growth over the next three years, with EPS forecast to grow by 24 per cent per annum from FY10 to FY13. Driving this growth will be the ALS Laboratory Group’s Minerals and Environmental divisions.

Campbell’s share price has rise by more than 80 per cent in the past year, and it hit a 15-month high of $31.91 earlier this month. Since then, the stock has retreated by just under 9 per cent.

This year could be a difficult one for growth, Deutsche says, noting the stock has historically experienced strong revenue growth through a combination of acquisitions and organic growth initiatives.

All divisions are expected in FY10 to produce flat earnings compared with the previous year, but Deutsche expects revenue and margins to improve from FY11 onwards as benefits from a tick-up in the resources sector flow through.

Deutsche says that compared with companies in similar industries, Campbell appears to be more attractively priced, and is also trading at a roughly 15 per cent discount to its target price of $33.20.

The stock was trading at $29.47 at 12:41pm on Thursday, up 2.97 per cent.